Solar Stocks: Credit Suisse Names Its Top China Pick

Credit Suisse is upbeat about the short term prospects for Hong Kong and China-listed solar stocks but only one stock gets the tick of approval with a buy rating.

Hong Kong and China listed solar stocks have lagged U.S.-listed plays this year, but that underperformance could help boost sentiment towards the laggards given the strong demand for solar panels in the U.S. and China.

There has been a sharp contrast in performance. Among U.S.-listed stocks, Jinko Solar (JKS) is up 85% this year, while JA Solar (JASO) and Canadian Solar (CSIQ) have gained 38% and 43% respectively. The U.S. listed Guggenheim Solar ETF (TAN) is up 30% this year, triple the 10% return from the S&P500 Index.

When it comes to ranking the stocks, Credit Suisse reckons LONGi is the best bet because of its strength in mono-silicon technology:

We prefer structural winners such as LONGi (leader in mono-silicon technology) which are likely to benefit from both near term positive sentiment and strong long-term positioning. We expect demand for Mono-Silicon (mono-Si) solar components to more than double during 2016-20, driven by market share expansion (from 25% to 50%) due to its superior cost efficiency over competing multi-silicon (multi-Si) technology.

For China's solar operator market, we expect a shift from ground-mounted solar farms to distributed solar, which is also supported by strong distributed solar installation in 1H17 (~7 GW, almost tripled YoY). This could also help drive up demand for mono-Si products.

The stock is rated outperform with a price target of CNY23.50 a share. The stock last traded at CNY19.78 a share.

LONGi is trading at 14 times forecast 2018 earnings and is forecast to grow earnings at a compound annual rate of 27% between 2017 and 2019.

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